There is a lot to like about Airbnb:

• Steadily rising revenue and profits.
• Cash is increasing, while debt and expenses remain low.
• Annual bookings are rising with a limited amount spent on advertising/CapEx.
• A Founder-led company that still has lofty goals.

The company has almost all the characteristics of a no-brainer stock you want.

My problem with Airbnb and the stock consists of two issues:

First, the stock became a public company in 2020. The explosive user growth happened before 2020, when the concept was new. The company is past its hypergrowth stage of the business cycle, and most of the good news about Airbnb is already priced into the stock.

It could have been an ideal investment if the company had gone public before 2016. The price would have been at a steal deal where the FUD of the business model would have created an ideal entry point to buy the stock. You could have reaped the rewards during the early stages of its growth phase. You ask most hosts and travelers today, and the golden era of Airbnb is over. It is now a mature company maximizing profits.

I still qualify Airbnb as a quality business, and if you invest in Airbnb today, you will likely see healthy returns in the long term.

Investment thesis: Invest in high-quality businesses and hold for the long term. Airbnb is a high-quality business with over 4 million hosts and 150 million users. They have the network effect, and management will find a way to monetize their growing ecosystem.

I have no problem buying Airbnb stock; the above thesis for holding the stock is acceptable. Again, the business model is great, and shareholders have good reason to keep the stock. I am highly skeptical that Airbnb can join Apple, Microsoft, Alphabet, Amazon, Tesla, and Meta, whose market capitalizations reached $1 trillion.

I have doubts Airbnb will kill the hotel industry and certainly not to the effect that Amazon disrupted retail. The hotel industry is doing quite well and is not likely to collapse. Short-term rentals (STRs) and experiences are also niche markets. How much juice is there left to squeeze? For example, global cloud computing has an expanding market valued at over $483 billion. The STR market size is worth $100 billion.

The STR market is oversaturated and full of potential landmines for investors in the form of local and state government regulation. Regulation won’t kill Airbnb, but it can slow its growth and zap its profits. How do you stop the network effect? Government interference. Ask Alibaba or Coinbase how government regulation can stall your growth.

Airbnb must diversify its profile and get into long-term rentals (LTRs). They need to attract corporate and student listings for those looking for leases of 3 months or longer. Daily rates work for STRs, but leases are ideal for LTRs.

The problem is the LTR online marketplace already exists and is crowded. Assume Airbnb takes all of Zillow’s market share; that’s only $10.42 billion.

Airbnb will likely consider acquiring a global home furnishing and cleaning service company, but does that make it a $1 trillion company? I don’t see it. For Airbnb to get to that size, they have to disrupt industries outside of their online marketplace, and I see this happening with a low level of certainty.

Airbnb needs more reward potential to be added to my portfolio. The risk is low-moderate, and the reward is moderate-high. I already have enough companies in my portfolio with similar profiles. Airbnb, by proxy, is connected with the housing and real estate market, sectors I want to avoid being invested in. At the right price, I would consider buying the stock, but I will pass for now. I don’t see the 10x potential.